FedEx Seen as Possible TNT Suitor as First UPS Offer Fails

FedEx Seen as Possible TNT Suitor as First UPS Offer Fails

FedEx Corp. may try to jump into the
bidding for TNT Express NV after the board of Europe’s second-
largest package-delivery company rejected a $6.43 billion offer
from United Parcel Service Inc., investors and analysts said.
“FedEx is the most obvious” potential TNT suitor besides
UPS, said Katrina Dudley, a portfolio manager at Mutual Series,
a Franklin Templeton Investments unit whose funds own TNT stock.
“It is a once-in-a lifetime chance for one of the players to
create what I see as a strong global parcel franchise.”
TNT turned down UPS’s initial offer of 9 euros a share
while saying Feb. 17 that talks continue. That leaves an opening
for FedEx, operator of the world’s biggest cargo airline, to
swoop in to keep Hoofddorp, Netherlands-based TNT out of UPS’s
hands, said Kevin Sterling, an analyst at BB&T Capital Markets.
The prize would be expansion in Europe, where Deutsche Post
AG’s DHL leads in express deliveries, Sterling said in an
interview. A bid by UPS, the largest package-delivery company,
or Memphis, Tennessee-based FedEx has been the subject of
speculation for years.
“FedEx would benefit more from buying TNT because they’re
not as big in Europe,” said Sterling, who is based in Richmond,
Virginia. “But UPS has made it very clear they want to continue
to grow in Europe, that they like the opportunity in Europe, and
they’ve been expanding their Cologne hub.”

TNT Surges

UPS’s unsuccessful offer was disclosed by TNT on Feb. 17,
after Dutch trading ended. Investors signaled yesterday that
they expect bidding to go higher, sending TNT surging 60 percent
to 10.18 euros, 13 percent more than the offer price. The stock
fell 2.5 percent today to 9.93 euros at 3:38 p.m. in Amsterdam.
“We fully expect another bid for TNT to come this week,”
Jason Seidl, a New York-based analyst with Dahlman Rose & Co.,
wrote in a note to clients. He has a “hold” recommendation on
UPS and a “buy” on FedEx.
UPS, based in Atlanta, fell 0.2 percent to $76.64 at 9:54
a.m. in New York, and FedEx slid 0.7 percent to $92.28.
“I don’t think this deal is over,” said David Campbell,
an analyst at Thompson Davis & Co. in Richmond, Virginia. “I
have a hunch TNT would come up with something to sustain the
price and the talks” with UPS.
A person familiar with the TNT-UPS negotiations said the
Dutch company is focused on UPS because FedEx has shown little
interest so far in a bid. While UPS has confirmed being in
talks, FedEx isn’t discussing TNT.
“As a matter of policy, we do not comment regarding
corporate development matters,” Jess Bunn, a spokesman, said
yesterday in an e-mail, reiterating FedEx’s response when TNT
disclosed the overture from UPS.

2011 Spinoff

TNT was spun off in May from the Dutch postal operator,
which is now named PostNL and retains 29.9 percent of the
company.
The company’s profit margin has been cut by more than half
2006, when, as the package-delivery unit of its former parent,
earnings before interest and taxes was 9.6 percent of revenue.
In 2010, adjusted Ebit represented 4.5 percent of revenue.
FedEx “could come in and offer 11 or 12 euros to make UPS
sweat a little,” said Sterling, who like Campbell recommends
buying UPS and FedEx stock. “Both of them would like to get it,
and it’s a matter of who walks away first. UPS threw its cards
on the table first and now we know that the floor is 9 euros.”

Acquisition History

Overseas purchases have helped FedEx’s global expansion.
The company bought the Flying Tigers freight airline in 1989 to
gain routes to 21 Asian countries, and spent $400 million in
2007 to take over a joint venture with China’s Tianjin Datian W.
Group Co.
In late 2010, FedEx agreed to buy AFL Pvt. Ltd. and
affiliate Unifreight India Pvt. Ltd., followed by MultiPack, a
domestic express-delivery company in Mexico.
Dudley, the Mutual Series portfolio manager, said FedEx
would be under pressure to come up with a counter to UPS’s offer
for TNT or risk missing out on a purchase that would give it a
competitive advantage overseas against the bigger U.S. company.
“If I were the CEO of another global parcel operator, I
would be having people sharpen their pencils and look at the
value of adding this asset to my franchise,” Dudley, who is
based in Short Hills, New Jersey, said in an interview. “And
also I would be considering the potential loss of positioning if
I didn’t have the asset in my franchise.”